Suppose the state of Mississippi creates a price floor in the market for cotton.If the floor is set below the current market-clearing price for cotton, the floor will cause a surplus of cotton.

Question

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If the price floor is set below the current market-clearing price, it will not have any effect on the market as buyers and sellers would continue to trade at the market-clearing price. A price floor set above the market-clearing price would cause a surplus of cotton.

Suppose the State of Mississippi Creates a Price Floor in the Market